Retailers have historically used “open-to-buy” (OTB) as a metric to manage their inventory levels at some aggregate level above items, such as the department or category level. OTB is a measure of the amount of additional inventory that may be purchased while remaining within an inventory budget, historically a department or category inventory budget. For example, if a department inventory budget is $100 million and the current inventory level is $75 million, then the open-to-buy is $25 million. Retailers have found OTB very useful as an inventory management tool because it allows inventory management by department or category and in the aggregate. Because inventory represents a significant use of capital for most retailers, good inventory management and controls are critical to overall financial success.
There are many varieties of OTB, including different sets of factors, which work to create a comparison of projected inventory to budget. OTB typically is analyzed monthly. FIG. 1 depicts a typical OTB report. The report columns typically start with last month's ending inventory or this month's beginning (BOM) inventory 120, to which purchase orders scheduled to arrive this month 121 are added. Then permanent markdowns expected to occur 122 are subtracted, promotional discounts expected during the month 123 are subtracted, the impact of Suggested Retail Price (SRP) changes 124 are factored in, as are the impacts of any other factors 125 (e.g., write offs, employee discounts, damages, and shrink). Projected sales 126 (usually at the projected transaction prices) are subtracted out to arrive at the projected ending month (EOM) inventory 127. This ending month inventory is then compared to the budgeted inventory 128 to determine how much open-to-buy dollars 129 are still available within the month.
Various retailers analyze OTB at different levels of their product hierarchy. To the best of the inventors' knowledge, all large retailers not using the present invention analyze OTB above the individual item level (e.g., at the size, color and style level). FIG. 2 shows a typical retailer product hierarchy, against which OTB analysis normally would compare Department- or Category-level projected inventory to budget.